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Thursday, 21 April 2016

I appreciate Prime Minister Shinzo Abe's devotion to his duty as
the leader of Japan. The Abe administration upholds Abenomics which is a vital
policy for the Japanese economy and people's life, and it draws worldwide
attention. However, I am deeply concerned with the accomplishments of Abenomics
until now and its recent directions, since I still support the Abe
administration despite these worries.

The key objective of Abenomics is a departure from 20 year
deflation. For this purpose, the Bank of Japan supplied a huge amount of base
money to cause inflation, and carried out quantitative and qualitative monetary
easing so that consumers and businesses have inflationary mindsets.

This "first arrow" of Abenomics was successful to boost
corporate profits and raising stock prices by devaluing the exchange rate, but
falling oil price makes it unlikely to achieve a 2% inflation rate, despite BOJ
Governor Haruhiko Kuroda's dedicated effort. The quantitative and qualitative
monetary easing will not accomplish the core objective.

Another reason for such a huge amount of base money supply is to
expand export through currency depreciation and to stimulate economic growth,
but that has neither boosted export nor contributed to economic growth. We
cannot dismiss world economic downturn, notably in China, but actually,
Japanese big companies that lead national export, have shifted their business
bases overseas during the last era of strong yen.

From this point of view, I suspect that the Japanese government
overlooked such structural changes that deterred export growth, even if the yen
was devalued. The "second arrow" is flexible fiscal expenditure to
support the economy, and the result of which has revealed that it is virtually
impossible to keep the promise to the global community to achieve the
equilibrium of the primary balance in 2020.

In view of the above changes, I would like to lay my hopes on the
"third arrow" of economic growth strategy. The growth strategy has
been announced three times up to now, in 2013, 2014, and 2015, respectively.

The strategy in 2013 launched three action plans, but they were
insufficient. The 2014 strategy was highly evaluated internationally, as it
actively involved in the reform of basic nature of the Japanese economy, such
as capital market reform, agricultural reform, and labor reform. But it takes
ten to twenty years for a structural reform like this to work.

Meanwhile, it is quite difficult to understand the growth
strategy approved by the cabinet in June 2015. Frankly, this is empty and the
quality of it has become even poorer. Abenomics was heavily dependent on
monetary policy, and did not tackle long term issues so much, such as social
security and regional development.

However, people increasingly worry about dire prospects of long
term problems like population decrease, aging, and so forth, while the
administration responds to such trends with mere slogans like "regional
revitalization" and "dynamic engagement of all citizens". But it
is quite unlikely that these "policies" will really revitalize the
region, or promote dynamic engagement by the people.

It appears to me that these slogans are intended to boost
election campaigns for the House of Councillors or possible double election
with the House of Representatives in July, rather than to resolve real economic
problems.

This is typically seen in distribution of subsidies to the
region, increases in governmental assistance to all categories of people,
particularly benefits to lower income and elderly people with the total amount
of 360 billion yen, and complete acceptance of Komeito's demand to introduce
the reduced consumption tax rate system.

Still, I would like to support the Abe administration
continually, and this is why I advise them to articulate their policy
directions to manage increasingly unforeseeable economy. From now on, I will
tackle specific issues of this big problem one by one.

(This is the English translation of an article written by SHIMADA Haruo,
President, Chiba University of Commerce, which originally appeared on the
e-forum "Hyakka-Seiho" of JFIR on February 8, 2016, and was posted on
"JFIR Commentary" on March 17, 2016.)

Resource
:

The
Japan Forum on International Relations (JFIR) E-Letter(20 April 2016, Vol. 9,
No.2)